Items of interest:
Jumbo Mortgage Risk Will Topple the Teetering GSEs -- When President Bush signed the Economic Stimulus Act into law making jumbo mortgages GSE insurable, he may have unwittingly pushed our GSEs, Fannie Mae (FNM) and Freddie Mac (FRE), already on tilt, over the edge. If you think we have a housing crisis now, wait until you see what the demise of the GSEs and subsequent secondary mortgage market would do.
Let’s start with a few facts here to bring you up to speed on all the players and the game.
First, we have the GSEs: Fannie Mae and Freddie Mac, who for all practical purposes create and dominate our “prime” credit, full documentation, conforming loan limit (up to $417,000), bread and butter, mortgage products. They are considered “quasi-government” organizations but are really just NYSE traded companies with much more responsibility since they insure mortgage loans so they can be “pooled” and sold to Wall Street. [...]
Facing Default, Some Walk Out on New Homes -- When Raymond Zulueta went into default on his mortgage last year, he did what a lot of people do. He worried.
In a declining housing market, he owed more than the house was worth, and his mortgage payments, even on an interest-only loan, had shot up to $2,600, more than he could afford. “I was terrified,” said Mr. Zulueta, who services automated teller machines for an armored car company in the San Francisco area.
Then in January he learned about a new company in San Diego called You Walk Away that does just what its name says. For $995, it helps people walk away from their homes, ceding them to the banks in foreclosure.
Last week he moved into a three-bedroom rental home for $1,200 a month, less than half the cost of his mortgage. The old house is now the lender’s problem. “They took the negativity out of my life,” Mr. Zulueta said of You Walk Away. “I was stressing over nothing.”
You Walk Away is a small sign of broad changes in the way many Americans look at housing. [...]
-----Warren Buffett / CEO / Berkshire Hathaway:
Annual Letter to Shareholders [.pdf] -- You may recall a 2003 Silicon Valley bumper sticker that implored, “Please, God, Just One More Bubble.” Unfortunately, this wish was promptly granted, as just about all Americans came to believe that house prices would forever rise. That conviction made a borrower’s income and cash equity seem unimportant to lenders, who shoveled out money, confident that HPA – house price appreciation – would cure all problems. Today, our country is experiencing widespread pain because of that erroneous belief. As house prices fall, a huge amount of financial folly is being exposed. You only learn who has been swimming naked when the tide goes out – and what we are witnessing at some of our largest financial institutions is an ugly sight. [...]
Vacant Homes in US, Most Since '70s, Ghost Towns -- Almost 200,000 newly constructed single-family homes are sitting empty in the U.S., the most since Commerce Department statistics began in 1973. Partially completed developments reduce revenue for cities and towns and hurt businesses, said Nicolas Retsinas, the director of Harvard University's Joint Center for Housing Studies. Rising foreclosures and falling property values may cut tax revenue by more than $6.6 billion for 10 states, including New York, California and Florida, the U.S. Conference of Mayors said in a November report. [...]
- Balance Sheets Still Don't Balance - Floyd Norris, New York Times
- Financial Firms Face $600 Billion of Losses, UBS Says - Bloomberg
- Mortgage Meltdown, Implications for Credit Availability - Fed Reserve Boston
- Four Wrong Reasons for Pessimism - Rich Karlgaard, Forbes
- The Bernanke Reflation - Editorial, Wall Street Journal
- Inflation and Its Various Measures - Richard Rahn, Washington Times
- Gold Still Has Room to Rise - Mark Hulbert, MarketWatch
- Wall Streeters Search for Meaning - Liza Porteus Viana, Portfolio
- Bernanke's Tightrope Act - James Hamilton, Econbrowser
- Recession vs. Slowdown - Larry Kudlow, CNBC video
- Market instability - Financial Times
- Defaults up 15 percent in NYC - NY Daily News
- Housing bill will 'bail out lenders' - Bush - CNN Money